The Regulator for Charities in England and Wales
(9 October 2008)
We know that many charities are not sure whether they are eligible to claim compensation for the loss of their savings and deposits should their bank or building society fail. We have received a number of enquiries on this subject recently and hope that this guidance tailored specifically for charities and their trustees will be of help.
The FSCS http://www.fscs.org.uk covers business conducted by firms (e.g. banks or building societies) authorised by the Financial Services Authority (FSA) and can pay compensation to consumers if an authorised firm is unable, or likely to be unable, to pay claims against it. The rules for the FSCS are made by the FSA http://www.fsa.gov.uk and they set out which types of claims can be considered. The compensation limit for deposits has now increased to £50,000.
The information provided by the FSCS about the Scheme does not specifically mention charities. However, it appears that charities are covered by the Scheme to the same extent as other organisations and individuals.
The FSA Handbook of rules and guidance sets out which claims will not be eligible for compensation. Many charities should be eligible to claim compensation but there appear to be a number of important exceptions. In our view, the exceptions that are most likely to include charities are:
If charities want more information about the FSCS, or wish to submit a claim, they should contact the FSCS directly (full contact details below).
3.1 We understand that the FSCS does not extend to deposits in the Isle of Man. These are covered by the Isle of Man's Depositors' Compensation Scheme which states that compensation will only be paid to depositors who are individuals. The word "individual" is not defined but it usually refers to a human being rather than a corporation, trust, or unincorporated association. The Financial Supervision Commission of the Isle of Man website confirms that the scheme does not cover companies, trusts, partnerships and charities.
3.2 London Scottish, a Manchester based bank, has gone into administration. We understand that all eligible depositors (see above) will not lose their savings. The administrators, Ernst & Young, are also quoted as saying that all 10,000 depositors with the bank are eligible under the scheme and they will be in contact with depositors shortly.
In administering the property of a charity, a trustee must use the same kind of diligence and care in the execution of his or her office that a person of ordinary prudence would use in the management of their own affairs. This means that providing the trustees have done so, they are unlikely to be at risk. In addition, the courts are likely to make allowances where trustees are not investment professionals and are not paid.
When exercising any power of investment trustees must follow standard investment criteria on the suitability and diversification of investments. They must also review the investments from time to time, and take proper advice when investing or reviewing those investments.
For more details on the investment of charitable funds, please see our web based guidance www.charitycommission.gov.uk/supportingcharities/cc14full.asp.
Website: http://www.fscs.org.uk
Customer Services Team: 020 7892 7300
Email: enquiries@fscs.org.uk (Enquirers should include their full name and address in the email)
Financial Services Compensation Scheme
7th floor, Lloyds Chambers
Portsoken Street
London E1 8BN